The IMF board issued a statement late Saturday saying that the actions of IMF Managing Director Dominique Strauss-Kahn were "regrettable and reflected a serious error of judgment."
However, the 24-member board of directors decided that Strauss-Kahn’s relationship with the former IMF employee was consensual and did not involve any type of sexual harassment, favoritism or any abuse of authority.
"The personal conduct of the managing director sets an important tone for the institution and, as such, must be beyond reproach at all times," the board, which represents the fund's 185 member countries, said in the statement.
The board reached its conclusions at the end of a daylong meeting at IMF headquarters in Washington.
The IMF is expected to play a critical role in providing loans to countries harmed by the current global financial crisis.
The board said that based on the findings of an outside law firm hired to investigate the matter and discussions Saturday with Strauss-Kahn, that they now consider the incident closed.
An investigative report by the law firm of Morgan, Lewis & Bockius said the two IMF employees acknowledged that there was "consensual physical relationship of short duration in January 2008."
The report noted there was no evidence that Strauss-Kahn "arranged for or provided the female staff member with any work-related benefit for participating in the affair." It also found no evidence that Strauss-Kahn "threatened the female staff member in any way" to keep the affair confidential.
The former employee with whom Strauss-Kahn had the affair has been identified as Piroska Nagy, now in London with the European Bank for Reconstruction and Development.
The incident involving Strauss-Kahn occurred 15 months after Paul Wolfowitz resigned as president of the World Bank amid controversy over a pay package for his girlfriend, a bank employee. The World Bank is a sister lending institution to the IMF.
In a statement released with the boards findings, Strauss-Kahn, who became the IMFs 10th managing director a year ago, called what he did a "serious error of judgment" but said he was grateful that the board had found that he had not abused his authority.
"I very much regret this incident, and I accept responsibility for it," Strauss-Kahn said in his statement. "I have apologized for it to the board, to the staff of the IMF and to my family. I would also like to reiterate my apology to the staff member concerned for the distress this process has caused.
DID NOT OFFER TO QUIT
While the board stopped short of disciplinary action, its leader, Shakour Shaalan, acknowledged there was concern among female staff about Strauss-Kahn's behavior.
Shaalan said he personally warned Strauss-Kahn, a former French finance minister, against further improper conduct. He said the board had accepted Strauss-Kahn's apology.
Shaalan said Strauss-Kahn was never asked to resign, nor did he offer to.
"There is little doubt in my mind that while there is some confidence that may have been lost, he will regain it very soon," he added.
In the findings from the investigation, made available to the media, the law firm Morgan, Lewis & Bockius said there was no sign that Strauss-Kahn coerced Nagy into the affair or gave her preferential treatment.
It also said there was no evidence that he pressured her into leaving the Washington-based institution and noted that her decision to leave "was hers and hers alone."
The report said the investigation did not find any evidence to support other allegations of improper conduct.
IMF spokesman Masood Ahmed said the board's findings and its acceptance of Strauss-Kahn's apology meant the matter was now considered closed.